Tag: indian contract act

Promissory estoppel as a substitute to the consideration

The doctrine of consideration and promissory estoppel is a term used in contract law that deals with the bargaining condition of the contract.

The Doctrine of Promissory Estoppel

The doctrine of promissory estoppel is an equitable doctrine. It is a principal evolved by equity to avoid injustice to the parties. The true principal of promissory estoppel is where one party has by his worlds on conduct made to the offer a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in the future knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go upon it is necessary for the application of the doctrine that one party has his position in reliance of the promise.in other words, promissory estoppel is a unilateral promise from one side and intended to induce some action by the other party. The promisee is note bound to act, for his gives no promisor to his promise. His act is at the same time an acceptance of and a consideration for the same. To attract the application of this doctrine, the following ingredient must be satisfied:

1)         That there was a promise in regard to something to be done in future.

2)         That the promise was intended to affect the legal relationship of the parties and to be acted upon accordingly.

3)         That it is one on which the other side has, in fact acted to its prejudice. 

The case of Hughes v. Metropolitan Railway[1] is known as a part of the origin of the doctrine. In the case the property owner gave his tenant the option of repairing the property in six months or face forfeiture. Under the lease, the owner, could make the tenant. Metropolitan Railway, do repairs on the building, so the tenant had six months to complete the repairs. Before the six months had transpired, the tenant proposed to the owner to buy the property. There were negotiations for the purchase of the property, but it wasn’t settled. After the six months expired, the owner sued the tenant for breach of contract and attempted to evict the tenant. The tenant had completed the agreed upon repairs past the six-month deadline. The owner was successful in suing the tenant, however, the appellate court overruled the decision. It was originally believed that the plaintiffs were trying to take advantage of the defendants by negotiating with them and then stalling, causing the six months to expire and then suing them. But that wasn’t true. They sued them because the six months had expired.

The ruling was that through their dealings, both parties made it inequitable to count the time of the negotiations as a part of the six months. The defendants relied on this promise, and therefore, it would be unfair to make them liable in this case. The implied promise is enough to allow estoppel to apply.

The Doctrine of Consideration

Consideration is defined under section. 2(d) of Indian Contract Act, 1872. The doctrine of consideration is defined as an act, or promise, of the price in which the other party is bought, and the entire agreements is then enforceable. The doctrine of consideration is important in all contracts, as it refers simply to an agreement that is legally enforceable.

However, it is important to note that there have been significant modifications to the pre-existing doctrine of consideration.

 In the case of Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd[2] the court held in a unanimous decision that Dunlop could not claim for damages in the circumstances. The court found that firstly, only a party to a contract can claim upon it. Secondly, Dunlop had not given any consideration to Selfridge and therefore there could be no binding contract between the parties. Lastly, Dunlop was not listed as an agent within the contract and could therefore not be included as a valid third-party who had rights to claim on the contract.

Promissory estoppel as a substitute to the consideration

The doctrine of promissory estoppel is an alternative to the doctrine of consideration. It refers to a contract that cannot be withdrawn because one party acted on the other parties’ promise. In most cases, one party was harmed or served injustice because of the broken promise that they relied on. The promissory estoppel acts as a legal shield against the other’s claim, even though they did not give any consideration.

The doctrine of promissory estoppel is the exception to the contract consideration rule. It implies that a contracted promise is enforceable by law even without any consideration present. It is important, however, to understand that the promissory estoppel can only be used as a legal defense and not to initiate a legal claim.

Promissory estoppel is an important doctrine in contract law in which a non-contractual promise lacking consideration rendered enforceable to avoid an injustice. Promissory estoppel arises when injustice can be avoided only by means of the enforcement of a promise that would otherwise be unenforceable for lack of consideration. It is usually applied in cases in which a party has relied on another party’s promise, and that party’s nonbinding promise will be enforced because to do otherwise would be unfair. Promissory estoppel is commonly used in the context of charitable donations. In some jurisdictions the charity must have reliance on the promise but in others reliance is not necessary.

[1] UKHL 1977 AC 439

[2] UKHL 1915 AC 847

SECTION 10 AND 11, COMPETENCY TO CONTRACT

WHAT IS A CONTRACT?

The contract is an agreement between various parties which is validated and framed by Indian Contract Act, 1872. It defines the term “Contract” under its section 2 (h) as “An agreement enforceable by law”. An agreement is a deliberate, mutual, legally binding between two or more competent parties. The Agreement creates reciprocal legal obligations between two private parties. Generally, contracts are written, but they may be implied or spoken. A contract is therefore a legal agreement that provides special rights (as specified by the contract itself) to the parties as well as responsibilities that all parties to the contract have created, established, and agreed upon.

SECTIONS 11 AND 12 AS GIVEN IN ICA,1872

SECTION 11: Every person is competent to contract who is of the age of majority according to the law to which he is subject,1 and who is of sound mind and is not disqualified from contracting by any law to which he is subject.

SECTION 12: A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.”

A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind. 

PROVISIONS UNDER SECTION 11

  • Attaining the age of majority
  • Sound minded
  • Not a disqualified person by law from contracting

ATTAINING THE AGE OF MAJORITY

The age of majority in India is specified as 18 years, according to the Indian Majority Act of 1875. Any person who has not reached 18 years of age and is a resident of India is considered a minor.

Contract with minor is void

Because a person under the age of 18 does not have the potential to enters a contract, any agreement entered into with a minor is void or void ab-initio.  However, if a minor entered a contract, he cannot ratify it even though the majority has been reached because the contract is invalid.

Conditions when contract with minor is not void

A minor could be a beneficiary of a contract:

While a minor may not be able to enter into a contract, he may be the beneficiary of one.

A minor is always given the advantage of being a minor:

Even if a minor falsely represents himself as a major and takes a credit or enter into an agreement, he may plead a minority.  The estoppel rule will not be extended against him/her.

Contract by a guardian:

In certain conditions, the guardian of a minor may enter into a valid contract on behalf of the minor. Such a contract entered into by the guardian for the benefit of the minor.

Insolvency:

A minor cannot be declared insolvent because he cannot afford debts.

A Minor and an Adult shared contract:

In the case of a joint contract between an adult and a minor, performed on behalf of the minor by the guardian, the adult shall be held liable for the contract.

SOUND MINDED PERSON

According to Section 12 of the Indian Contract Act , 1872 describes the principle of soundness of brain as follows:

A person is said to have a sound mind if he or she is capable of comprehending the contract and its effect on his or her interests. Besides, who is typically of a sound mind, but occasionally of an unsound mind, cannot enter a contract during the period of his/her unsound mind. Similarly, a person who is normally of an unsound mind, but occasionally of a sound mind, can make a contract when he is of a sound mind.

Analogy between English law and Indian law:

In England, mere unsoundness of mind is no defense; a lunatic’s contract is binding on him, unless he can prove that he was entirely incapable of comprehending what he/she was doing at the time of entering the contract and that the other party was known to his/her lunaticism. In India, the contract of a person with an unsound mind is void.

PERSONS DISQUALIFIED BY LAW

A person who is blacklisted person by law. Grounds for disqualification by law include political affiliation, legal status, etc. Some of such people are foreign sovereigns and ambassadors, alien enemies, convicts, insolvents, etc.

Alien enemy: A person who is not an Indian citizen is called an alien or non-citizen of the Republic of India. An alien enemy is a person whose country is at war with India.

Convicts: A convict is a person, who is sentenced by a competent court to the death sentence or imprisonment.

Insolvent: There is no prohibition against a contract by an insolvent after the insolvency proceedings have commenced but before adjudication.

Foreign sovereigns and diplomats: Foreign sovereigns have some special privileges. Generally, they cannot be sued unless they, themselves surrender under the jurisdiction of the Indian court of law.

Corporations: A corporation’s ability to establish a contract varies according to the corporation’s character. A corporation is an artificial entity created by law and is capable of contracting but its contractual power is subject to the limitation.

CONCLUSION

Some of the most important conditions for making an arrangement legal and enforceable in a court of law is the integrity of the parties to contract.

A contract made by a person who does not have the intellectual capacity to understand the meaning of the contract and its effects is void ab initio. In the other hand, arrangements with lunatics can / may not be void for persons under the influence of the drug depending on the circumstances surrounding the case.

A person regains the legal capacity to contract if any of the disqualifications are removed.